UK non-dom tax changes
UK non-dom tax changes
'Don't waste your words on people who deserve your silence'
~Reinhold Messner~
'You don't have to be afraid of everything you don't understand'
~Louise Perica~
"Never put off until tomorrow, what you can put off until next week."
~Ian Vincent~
~Reinhold Messner~
'You don't have to be afraid of everything you don't understand'
~Louise Perica~
"Never put off until tomorrow, what you can put off until next week."
~Ian Vincent~
Re: UK non-dom tax changes
More changes to the UK inheritance taxes as they apply to the resident and non-resident (non-dom).
From the 6th April 2025 the UK has now adopted a new domicile system for inheritance tax, based on long term residency rather than where you were born, where your father was born or where you perceive as your home! Overall, the change is good news for expats that have already left the UK (especially if they’ve already been away for more than 10 tax years), but not so good if you are just arriving in the UK, nearly reaching 10 years of UK residency or thinking of going back.
UK PROPERTY AND INVESTMENTS
Firstly, let’s get the easy part out of the way. UK situs assets, such as property and investments remain in scope for UK IHT as they always have, regardless of an individual’s Domicile or Tax Residence. This position hasn’t changed.
THE NEW DEFINITION
But now, to determine whether your non-UK (or worldwide) situs assets fall into the UK inheritance tax (IHT) regime, you must be deemed a long term resident (LTR), and thus the individual must have been tax resident in the UK for at least 10 out of the last 20 tax years immediately preceding the year in which the chargeable event (death) arises. You should note that the definition of LTR is determined by the Statutory Residency Test (see attached flowchart), which means one can potentially be deemed UK tax resident for being present in the UK for as little as 46 days, if you have FOUR ties to the UK. These ties to the UK tend to apply to those recently leaving ot arriving in the UK and they fall away, the longer you have been overseas. In addition, any ‘split’ years of residency will count as a full year, when working out the 10 years.
(It’s not easy to follow without context, but for completeness, I attached a Statutory Residence Test flow chart. If you have any queries on it or need something explaining, please let me know).
Long standing UK expats who don’t satisfy the above (10 out of 20 rule), automatically became Non-UK LTRs on 6th April 2025. This means that HMRC should no longer be interested in your Domicile or what assets you have outside the UK, if you have already resided outside the UK for more than 10 consecutive tax years. (A big hoorahhh for many of you).
THE POSITION FOR (UK) LEAVERS
The key here is how many years was the individual tax resident in the UK, in the previous 20 years up to the point of leaving (emigrating). IHT could still apply to worldwide assets for a further period of 3-10 years after leaving. This is being referred to as ‘the tail’.
If you have been (tax resident) in the UK for only 10-13 years, then you will need to do a further 3 full tax years outside the UK before worldwide assets become not chargeable to UK IHT.
If you were (tax resident) in the UK for only 15 years, then you will need to do a further 5 full tax years outside the UK before worldwide assets become not chargeable to UK IHT.
And if you have done 20 years or more, you will need to be Non-Tax Resident for at least 10 consecutive tax years, before your worldwide assets are no longer chargeable to UK IHT.
THE POSITION FOR RETURNERS (TO THE UK) OR NEW ARRIVALS
If an individual was Non-UK Tax Resident for 10 or more Consecutive UK tax years, when they return to the UK the LTR test is reset and they will have a window of 10 years where their overseas assets are NOT subject to UK IHT, ie non-UK situs assets will remain out of scope for at least 10 UK tax years after the Individual returns to the UK.
In practical terms, if an individual has NOT been outside the UK for 10 full consecutive tax years and is considering moving back to UK, if possible, they should consider postponing the return until the 10 full years is met.
If an individual returns to the UK and they have a QROPS (overseas pension), then this will become chargeable to UK IHT after 10 years UK residency has elapsed.
TRANSFERS BETWEEN SPOUSES/CIVIL PARTNERS
Thankfully, transfers between UK-LTR Spouses or Civil Partners are exempt from IHT (as has always applied to all assets). But note – applies between Long Term Residents only.
Where a transfer is made from a UK LTR Spouse to a Spouse who is NOT a LTR – only up to the prevailing Nil Rate Band will be exempt.
Similarly, where a Non-LTR transfers assets upon death to a Non-LTR - only up to the prevailing Nil Rate Band will be exempt. To add context with an example common to expats:
A UK national owns a UK property and has a foreign spouse (non-UK national). They both currently live in SE Asia and are thus non-LTR in the UK, but the property is still subject to UK IHT due to its UK situs asset status.
The UK national dies and passes the property to the foreign spouse. Only the Nil Rate Band of £325k is exempt (and potentially the Residence Nil Rate Band of £175k). The excess will be subject to UK IHT.
In this scenario, it might have been good planning to make the foreign spouse a joint owner as they will acquire their own Nil Rate Band of £325k. If this is not feasible or too costly, another option could be for the foreign spouse to elect to be treated as a Long Term Resident (LTR) and thus benefit from the spouse-to-spouse exemption. Careful consideration must be made as this will automatically make the surviving spouse’s worldwide assets subject to UK IHT for a minimum period of 10 consecutive tax years from the date of election, even if they reside overseas.
KEY CONSIDERATIONS
All UK expats that visit or spend time in the UK or who are considering moving back, need to check their LTR status and residency history. Even minimal periods of physical presence in the UK can cause someone to be UK resident under the Statutory Residence Test (SRT) – see attached (it’s an old version but the fundamentals remain the same). Days in the UK and considering UK ‘ties’, especially in the early years after “leaving” the UK, can alter the LTR outcome.
A similar assessment is required where someone has been outside the UK for 10 consecutive tax years and are there any UK visits that might have interfered with the assessment, in the interim.
Consider the impact on couples with different domiciles or split residency...will they have the same LTR status?
UK PENSIONS & INHERITANCE TAX
Which brings me nicely onto the UK Government’s appalling decision to include pensions in the inheritance tax regime, but not until 6th April 2027. The detail has not yet been published as the government is considering the industry feedback from the consultation that ended in January 2025. In a nutshell, the industry said probate and its intricacies are far too complex and unworkable for a pension administrator to deal with and that a flat rate of tax would be a simpler solution. (In my mind, a complete rejection of this policy and overthrowing of government is a more justful outcome). Anyhow, here is what we know so far and what to look out for:
Will the “Pension Plan” be the taxed vehicle or will they look through to see what the pension is invested in ?
If the Pension Plan is the asset taxed, then one would anticipate that ALL UK Pensions are UK Situs Assets and assessable to UK IHT no matter where the deceased resides. (This would also apply to a QROPS where the individual is a LTR for 10 tax years in the last 20).
Where a QROPS is held by an expat overseas who is a Non-LTR (already overseas for more than 10 years) – these are Non-UK Situs Assets and should be outside UK IHT, but if there is the possibility that there will be a ‘look through’ to see where those assets are invested, then the QROPS should NOT hold any UK situs assets.
For those holding a UK pension, it will simply be added to the estate and taxed where it pushes the estate value above the relevant allowances. There will be no option to choose that a pension pays all of the IHT tax charge or none of it, as the intention is to pro-rata the allowances across all assets. You cannot pick or choose an asset to cover the tax bill.
In the event a UK pension is passed on to beneficiaries, potentially after a tax liability, if the deceased was under age 75 the proceeds will be tax-free (up to certain limits) but if the deceased was over age 75 the proceeds will be subject to income tax based on the beneficiary’s tax status; 40% inheritance tax followed by income tax of up to 45%. This is not double taxation, but in some instances will be triple taxation. Then if that beneficiary dies and passes the fund on, the same process is repeated; potential IHT + potential income tax.
For those fortunate to hold a QROPS, the position is much rosier. There is no IHT on pension funds held by a Non-LTR (expat overseas) and no income tax payable by beneficiaries, regardless of the age of the deceased when they pass it on.
From the 6th April 2025 the UK has now adopted a new domicile system for inheritance tax, based on long term residency rather than where you were born, where your father was born or where you perceive as your home! Overall, the change is good news for expats that have already left the UK (especially if they’ve already been away for more than 10 tax years), but not so good if you are just arriving in the UK, nearly reaching 10 years of UK residency or thinking of going back.
UK PROPERTY AND INVESTMENTS
Firstly, let’s get the easy part out of the way. UK situs assets, such as property and investments remain in scope for UK IHT as they always have, regardless of an individual’s Domicile or Tax Residence. This position hasn’t changed.
THE NEW DEFINITION
But now, to determine whether your non-UK (or worldwide) situs assets fall into the UK inheritance tax (IHT) regime, you must be deemed a long term resident (LTR), and thus the individual must have been tax resident in the UK for at least 10 out of the last 20 tax years immediately preceding the year in which the chargeable event (death) arises. You should note that the definition of LTR is determined by the Statutory Residency Test (see attached flowchart), which means one can potentially be deemed UK tax resident for being present in the UK for as little as 46 days, if you have FOUR ties to the UK. These ties to the UK tend to apply to those recently leaving ot arriving in the UK and they fall away, the longer you have been overseas. In addition, any ‘split’ years of residency will count as a full year, when working out the 10 years.
(It’s not easy to follow without context, but for completeness, I attached a Statutory Residence Test flow chart. If you have any queries on it or need something explaining, please let me know).
Long standing UK expats who don’t satisfy the above (10 out of 20 rule), automatically became Non-UK LTRs on 6th April 2025. This means that HMRC should no longer be interested in your Domicile or what assets you have outside the UK, if you have already resided outside the UK for more than 10 consecutive tax years. (A big hoorahhh for many of you).
THE POSITION FOR (UK) LEAVERS
The key here is how many years was the individual tax resident in the UK, in the previous 20 years up to the point of leaving (emigrating). IHT could still apply to worldwide assets for a further period of 3-10 years after leaving. This is being referred to as ‘the tail’.
If you have been (tax resident) in the UK for only 10-13 years, then you will need to do a further 3 full tax years outside the UK before worldwide assets become not chargeable to UK IHT.
If you were (tax resident) in the UK for only 15 years, then you will need to do a further 5 full tax years outside the UK before worldwide assets become not chargeable to UK IHT.
And if you have done 20 years or more, you will need to be Non-Tax Resident for at least 10 consecutive tax years, before your worldwide assets are no longer chargeable to UK IHT.
THE POSITION FOR RETURNERS (TO THE UK) OR NEW ARRIVALS
If an individual was Non-UK Tax Resident for 10 or more Consecutive UK tax years, when they return to the UK the LTR test is reset and they will have a window of 10 years where their overseas assets are NOT subject to UK IHT, ie non-UK situs assets will remain out of scope for at least 10 UK tax years after the Individual returns to the UK.
In practical terms, if an individual has NOT been outside the UK for 10 full consecutive tax years and is considering moving back to UK, if possible, they should consider postponing the return until the 10 full years is met.
If an individual returns to the UK and they have a QROPS (overseas pension), then this will become chargeable to UK IHT after 10 years UK residency has elapsed.
TRANSFERS BETWEEN SPOUSES/CIVIL PARTNERS
Thankfully, transfers between UK-LTR Spouses or Civil Partners are exempt from IHT (as has always applied to all assets). But note – applies between Long Term Residents only.
Where a transfer is made from a UK LTR Spouse to a Spouse who is NOT a LTR – only up to the prevailing Nil Rate Band will be exempt.
Similarly, where a Non-LTR transfers assets upon death to a Non-LTR - only up to the prevailing Nil Rate Band will be exempt. To add context with an example common to expats:
A UK national owns a UK property and has a foreign spouse (non-UK national). They both currently live in SE Asia and are thus non-LTR in the UK, but the property is still subject to UK IHT due to its UK situs asset status.
The UK national dies and passes the property to the foreign spouse. Only the Nil Rate Band of £325k is exempt (and potentially the Residence Nil Rate Band of £175k). The excess will be subject to UK IHT.
In this scenario, it might have been good planning to make the foreign spouse a joint owner as they will acquire their own Nil Rate Band of £325k. If this is not feasible or too costly, another option could be for the foreign spouse to elect to be treated as a Long Term Resident (LTR) and thus benefit from the spouse-to-spouse exemption. Careful consideration must be made as this will automatically make the surviving spouse’s worldwide assets subject to UK IHT for a minimum period of 10 consecutive tax years from the date of election, even if they reside overseas.
KEY CONSIDERATIONS
All UK expats that visit or spend time in the UK or who are considering moving back, need to check their LTR status and residency history. Even minimal periods of physical presence in the UK can cause someone to be UK resident under the Statutory Residence Test (SRT) – see attached (it’s an old version but the fundamentals remain the same). Days in the UK and considering UK ‘ties’, especially in the early years after “leaving” the UK, can alter the LTR outcome.
A similar assessment is required where someone has been outside the UK for 10 consecutive tax years and are there any UK visits that might have interfered with the assessment, in the interim.
Consider the impact on couples with different domiciles or split residency...will they have the same LTR status?
UK PENSIONS & INHERITANCE TAX
Which brings me nicely onto the UK Government’s appalling decision to include pensions in the inheritance tax regime, but not until 6th April 2027. The detail has not yet been published as the government is considering the industry feedback from the consultation that ended in January 2025. In a nutshell, the industry said probate and its intricacies are far too complex and unworkable for a pension administrator to deal with and that a flat rate of tax would be a simpler solution. (In my mind, a complete rejection of this policy and overthrowing of government is a more justful outcome). Anyhow, here is what we know so far and what to look out for:
Will the “Pension Plan” be the taxed vehicle or will they look through to see what the pension is invested in ?
If the Pension Plan is the asset taxed, then one would anticipate that ALL UK Pensions are UK Situs Assets and assessable to UK IHT no matter where the deceased resides. (This would also apply to a QROPS where the individual is a LTR for 10 tax years in the last 20).
Where a QROPS is held by an expat overseas who is a Non-LTR (already overseas for more than 10 years) – these are Non-UK Situs Assets and should be outside UK IHT, but if there is the possibility that there will be a ‘look through’ to see where those assets are invested, then the QROPS should NOT hold any UK situs assets.
For those holding a UK pension, it will simply be added to the estate and taxed where it pushes the estate value above the relevant allowances. There will be no option to choose that a pension pays all of the IHT tax charge or none of it, as the intention is to pro-rata the allowances across all assets. You cannot pick or choose an asset to cover the tax bill.
In the event a UK pension is passed on to beneficiaries, potentially after a tax liability, if the deceased was under age 75 the proceeds will be tax-free (up to certain limits) but if the deceased was over age 75 the proceeds will be subject to income tax based on the beneficiary’s tax status; 40% inheritance tax followed by income tax of up to 45%. This is not double taxation, but in some instances will be triple taxation. Then if that beneficiary dies and passes the fund on, the same process is repeated; potential IHT + potential income tax.
For those fortunate to hold a QROPS, the position is much rosier. There is no IHT on pension funds held by a Non-LTR (expat overseas) and no income tax payable by beneficiaries, regardless of the age of the deceased when they pass it on.
'Don't waste your words on people who deserve your silence'
~Reinhold Messner~
'You don't have to be afraid of everything you don't understand'
~Louise Perica~
"Never put off until tomorrow, what you can put off until next week."
~Ian Vincent~
~Reinhold Messner~
'You don't have to be afraid of everything you don't understand'
~Louise Perica~
"Never put off until tomorrow, what you can put off until next week."
~Ian Vincent~
Re: UK non-dom tax changes
Interesting, but only part that MAY impact me is any impact on a widows pension for my wife after i die; she should get about 30% of my civil service pension. Would this be taxable? (annual amount would only be a few thousand per year). I am assuming that couldn't be taxable as a lump sum inheritance.
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sometimewoodworker
- udonmap.com
- Posts: 3535
- Joined: October 7, 2008, 11:19 am
Re: UK non-dom tax changes
While the civil service pension paid to your widow is very probably subject to U.K. taxation, it is also quite possible that your widow will be entitled to the U.K. tax free allowance if so she could get about 550,000 per annum free of U.K. tax.rick wrote: April 22, 2025, 8:09 pm Interesting, but only part that MAY impact me is any impact on a widows pension for my wife after i die; she should get about 30% of my civil service pension. Would this be taxable? (annual amount would only be a few thousand per year). I am assuming that couldn't be taxable as a lump sum inheritance.
However she will still be liable to pay Thai tax, the Thai tax free limit is much lower than the U.K. one so you need to look into those figures.
As to a lump sum she may not be liable for U.K. tax, however she may well still have a Thai tax liability.
TLDR you need tax advice both in the U.K. and Thailand. Without correct advice there could be another rather nasty shock in prospect.
The TRD will only decide income is exempt if YOU can prove that it is
Jerome and Nui's new househttp://bit.ly/NJnewHouse
In my posts all fees and requirements are the standard R&R but TIT and a brown envelope can make incredible changes YMMV.
In my posts all fees and requirements are the standard R&R but TIT and a brown envelope can make incredible changes YMMV.
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Bandung_Dero
- udonmap.com
- Posts: 3903
- Joined: July 10, 2005, 8:53 am
- Location: Ban Dung or Perth W.A.
Re: UK non-dom tax changes
I'm the Thai Executor to a friends estate. His Thai widow gets a partial pension from the Bath & NE Somerset Council (amounts to about 30K Baht into her Thai bank monthly) I know she is paying a flat 20% (withholding) tax on the gross entitlement of which she has NO control over being a Non UK Citizen.rick wrote: April 22, 2025, 8:09 pm Interesting, but only part that MAY impact me is any impact on a widows pension for my wife after i die; she should get about 30% of my civil service pension. Would this be taxable? (annual amount would only be a few thousand per year). I am assuming that couldn't be taxable as a lump sum inheritance.
His UK/Thai Daughter is also getting a pension (I can't remember the percentage) as she is under 23yo and attending university (we have to send proof every year). We do an annual tax return and she gets a refund (by cheque which is a pain in the arse), she is a UK Citizen & Passport holder.
My friend also had a private pension of which TW gets a percentage and monthly deposit but is not taxed. I think something fell through the cracks when we were doing all the paper work for that one.
EDIT:- Not looking at Thai Tax implications! She would hit me if I even suggested she may have a problem.
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